Experiments in taxation and labour supply

Abstract

<p>Five laboratory experiments were conducted to test five predictions about labour supply from single-period, single-person utility maximization theory where utility is a function of consumption and leisure. These predictions were at the same time about the relative effects of different types of taxes on labour supply. Three of the experiments were repeated attempts to test hypotheses tested in prior laboratory experiments. Two were new. Two of the replication experiments were inconclusive. The other experiments supported theory. One further laboratory experiment was conducted to test a prediction about labour supply from optimal tax theory. The experiment supported the theory. Laboratory experiments in general are important tools for verifying or refuting theory. The particular theorems tested were important in themselves because they have social welfare improving policy implications for the design of wage taxation systems.</p>